Sovereign Risk and Macroeconomic Fluctuations in an Emerging Market Economy

Arbeitspapier

This paper assesses the role of sovereign risk in explaining macroeconomic fluctuations in Turkey. We estimate two versions of a simple New Keynesian small open economy model on quarterly data for the period 1994Q3-2008Q2: A basic version and a version augmented by a default premium on government debt due to a perceived risk of sovereign debt default. Model comparisons clearly support the augmented version since it leads to stronger internal propagation and hence smaller shocks are required in order to reconcile the observed dynamics of nominal and real variables, leading to better forecasting performance. The estimated default probability is highly debt-elastic, indicating that default fears are a relevant concern. The results suggest that the augmented model may lead to a better understanding of macroeconomic fluctuations in emerging market economies that are subject to sovereign risk. In terms of policy implications, counterfactual experiments show that both more active monetary policy and stronger fiscal feedbacks from debt on taxes can lead to less volatile inflation and debt dynamics, but higher debt feedbacks on taxation additionally reduce expected default rates.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Tinbergen Institute Discussion Paper ; No. 10-100/2

Klassifikation und Themen

• Klassifikation: Wirtschaft ; General Aggregative Models: General ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Fiscal Policies and Behavior of Economic Agents: General
• Thema: Sovereign default risk ; Macroeconomic fluctuations ; Emerging market economies ; Small open economy models ; Monetary and fiscal policy ; Länderrisiko ; Konjunktur ; Geldpolitik ; Finanzpolitik ; Neukeynesianische Makroökonomik ; Kleine offene Volkswirtschaft ; Schätzung ; Türkei

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Kirchner, Markus ; Rieth, Malte
• Ereignis: Veröffentlichung
• (wer): Tinbergen Institute
• (wo): Amsterdam and Rotterdam
• (wann): 2010

Weitere Informationen

• Handle: http://hdl.handle.net/10419/86994
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ